A participant currently employed with a school district in California would like to roll over their Keogh hr10 plan into their current employers 403(b) Non-ERISA plan.

Can a Keogh hr10 plan be rolled over into a 403(b) plan?

Yes. A KEOGH or HR-10 plan is a qualified plan that covers only a self-employed individual. The same rules regarding rollover apply to KEOGH plans as apply to any other qualified plan that covers only the 100% owner.

What verification must be done in order to verify the Keogh hr10 plan is eligible to move into the 403b plan?

There is no specific requirement. Regulation §1.401(a)(31)-1, A-14(a) provides that, "While evidence that the distributing plan is the subject of a determination letter from the Commissioner indicating that the distributing plan is qualified would be useful to the receiving plan administrator in reasonably concluding that the contribution is a valid rollover contribution, it is not necessary for the distributing plan to have such a determination letter in order for the receiving plan administrator to reach that conclusion." The regulation provides examples (but not an all inclusive list) of acceptable evidence following A-14(c).

Client is self-employed. His income is reported on Schedule C and his SIMPLE IRA contribution is reported on his 1040. He originally filed his 1040 in April 2010 and took a $31,500 deduction for his SIMPLE plan. Later in April he (or his CPA) determined that the maximum SIMPLE contribution for 2009 was $21,341.In May, he filed an amended 1040, reflecting the maximum deductible contribution of $21,341. Later in 2010 he received a corrective distribution from the SIMPLE plan of $10,159 + $613 earnings.

Do we file a Form 5330 so that he pays the 10% excise tax on his over-contribution?

To the extent that the $31,500 was contributed during 2009, the 10% excise tax applies; Form 5330 is used to pay this tax. The amount (if any) contributed in 2010 (up to $10,159) is a 2010 contribution.

Plus does he pay a 6% excise tax on his $10,159 and $613?

He is under age 59 1/2.If the excess amount (plus earnings) was distributed not later than October 15 2009, the 6% excise tax does not apply. Otherwise, yes.

Is this 6% excise tax reported on a 1040 form?

The excise tax is reported on Form 5329.

401(k) Plan including prevailing wage employees. Separate (non-leveraged) ESOP also sponsored by the same employer.

Is the 10% of compensation limit for QNECs from Davis Bacon in ADP testing based on the prevailing wage compensation or total annual compensation (including regular pay)?

It is based on plan compensation as defined in the plan document. Generally, that will be total comp, possibly reduced as permitted under one of the safe harbor definitions of compensation under section 1.415(c)-2(d). It is not limited to only Davis Bacon comp.

Since 10% of prevailing wage QNEC contributions can be included in ADP testing, does this limit the deferral contribution a participant can make by that QNEC amount ($16,500 offset by prevailing wage QNEC)?

No. A QNEC is a non-elective employer contribution; it is not subject to the $16,500 limit under section 402(g).

Can prevailing wage contributions be put into the plan as a match?

Yes, subject to any specific provisions in the plan document (and assuming no conflict with the state's prevailing wage laws).

If so could this be in addition to the QNEC?

Yes. The employer can make a non-elective contribution and a matching contribution to eligible participants, including the prevailing wage participants.

Since the match would not be based on deferrals (to that extent) should not be included in ACP testing, correct?

An employer contribution that is not based on a deferral is not a matching contribution.

What testing would be required of these matching contributions if not subject to ACP?

Matching contributions are subject to ACP testing, unless they are included in the ADP testing as QMACs. The plan document would have to allow for QMACs. Additionally, the rate of matching contributions is subject to testing under 1.401(a)(4)-4, as a benefit, right, or feature.

The two plans combined would be limited to 25% of eligible compensation, correct?

Yes. Note that the 25% deduction limit does not apply to elective deferrals under 401(k).

We recently took over a plan with a PS formula that places each employee into a separate category. Historically, the employer has determined the amount to be allocated to each participant and nondiscrimination testing has been completed under Section 401(a)(4). The 2010 allocation provides 2 different allocation rates to HCEs and 4 different allocation rates to NHCEs (6 nonexcludable participants total). Generally, we would limit the allocation rates for the NHCEs to 2. However, the contribution satisfies the nondiscrimination testing requirements under section 401(a)(4) without cross testing.The document is a prototype and the formula actually places each employee by name into their own categories. The document doesn't include the language limiting the allocation rates.

Are plans that use the Participant Group Allocation Method required to limit the number of allocation rates if the plan satisfies nondiscrimination testing requirements under section 401(a)(4) by general testing on a contributions basis?

The limit on the number of allocation rates applies regardless of the testing method used. You may want to check with the document provider about the language; a plan using a prototype document is subject to the limitation in the number of different allocation rates that can be used in a given plan year. Note that the restriction applies to the number of different rates that can be used to allocate the employer contribution for the year; it does not apply to the number of allocation groups defined in the plan document. In other words, depending on the number of NHCE participants, two or more allocation groups (as defined in the plan document) may have to get the same allocation rate for the plan year.

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Participants like their 401(k) plan401(k) plans have gotten a lot of bad press in the past few years, as the "extraordinary financial market volatility” over the past three years caused substantial drops in the value of plan assets. To gauge participant sentiments regarding these developments, the Investment Company Institute conducted two surveys that are summarized in Commitment to Retirement Security: Investor Attitudes and Actions, which is available from the ICI website.

The "household” survey contacted a sample of 3,000 households in the last two months of 2010 and yielded some surprisingly favorable results about the status of 401(k) plans. 91% of the surveyed households expressing an opinion stated that they viewed 401(k) plans favorably, and 41% agreed that they had a "very favorable” opinion. Most of the households based their impression on the ability of 401(k) plan accounts to accumulate significant savings, the performance of plan investments, and their personal experience. Only 56% considered media coverage to be an important factor in shaping their opinion. Most households who had accounts in defined contribution plans agreed that the plan helped them think long-term and made it easier to save. More than 40% of these households admitted that they probably would not be saving for retirement without their DC plans, and more than 80% said that the immediate tax savings accorded 401(k) deferrals were a big major incentive to contribute. Virtually all of the households with DC plan accounts believed that their control over account investments was important, and over 80% stated that their DC plans offered a good lineup of investment options.

The second survey contacted recordkeepers for almost 24 million participants in DC plans and focused on the first 9 months of 2010. Fewer than 4% of participants ceased making contributions to their plan during this period, which was similar to comparable periods in 2008 and 2009. Loan activity has steadily increased, however, with 18% of participants having an outstanding loan at the end of September 2010. Other ICI research has determined that plan loans tend to be "quite small,” however, whether measured as a dollar amount or as a percentage of the participant’s account balance.

Reprinted with permission from 401(k) Advisor.

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